Snapshot: 2008 – 2013

It’s that time of the year. 5 years back. The first time Sensex hit 21K. Cut to Jan 2013. Sensex is still below that number.

Jan 2008: 21,206

Jan 2013: 19,580

Cumulative Return including dividend: Near Zero

Cumulative Cost Inflation : Near 50% (At conservative 8% a year)

Now we like to think ourselves as long term investors. But that’s not our idea of long term investing!

But there have been enough wealth creators even from the Top.

Such lists normally have a lot a hindsight bias, but do provide some good hunting ground to see what worked, and which companies are thriving.

So, let’s look at them.

I have taken all companies with current Market Cap > Rs. 200 cr, and compared adjusted stock price in Jan 2008 and Jan 2013, and listed all companies with CAGR more than 12%. I have removed some companies which I found a bit fishy, though some might have still slipped into the list, as I haven’t researched many of these companies.

* For Financials, I have taken P/B and Book Value instead of P/E and EPS. These are marked in blue colour.

** Dividends are additional, impacting various companies’ Total Returns differently.

*** In many cases the starting P/E seems high, but these could be turnaround cases/ with low initial profitability – hence need to be analyzed individually.

Frankly, I did not expect so many companies on the list. There are 123 companies with CAGR of more than 12%, and 54 companies with CAGR more than 25%. Though in many cases, it would have been extremely difficult to forecast the rapid earning growth, or current excessive valuation multiple in order to imagine the high returns.

Of course, a large number of companies are consumer names, given the current stock market fancy. Also, such companies tend to perform relatively better in a tough economic environment, which we have been facing over the past few years. The list between 2003-2008 would have been quite different.

What is surprising is the low rank of HDFC Bank (14% CAGR + Dividend) and HDFC (7% CAGR + dividend). While they continued to grow at fast pace (20-30% like a clockwork), the initial high valuations took away all the juice, and turned them into growth traps.

How to use such lists:

1. Many of these are good strong companies (right combination of business opportunity, moat, management), and need to be studied and bought when available at attractive valuations.

2. Have a special look at companies which are trading at lower valuations than Jan 2008.

3. If many of these companies could have made money from the market top, they could have created even more wealth from more attractive valuations (or in a SIP fashion for impatient investors).

This is in spirit of how Mohnish Pabrai illustrated the difference between Graham and Munger style of investing. He said – ‘Graham goes to the supermarket everyday and sees what’s on sale. Munger decides what he likes and wants to buy, and then goes to the supermarket and sees if it’s on sale.’ (Sounds a bit condescending on the Father of Value Investing, but should be seen in regard to the approach and not the personality).

Some Big Caveats:

1. Such list are very much dependent on beginning and end dates taken, so we need not take the sequence very seriously. E.g. If we had taken ending period as Jan 2012 instead of Jan 2013, the list would have been quite different.

2. Also, not all the companies on the list, irrespective of the CAGR, are equal. Some had higher probability/ visibility, and could have accounted for a far bigger investment bet than others. And size of the bet is more important than few extra percentage points of CAGR on lower allocation.

3. The fact that these companies made money for investors over 5 years does not belie the fact that most of these stocks also fell by 50% or more during the 2008 carnage, and would have severely tested conviction/ courage and also potential opportunity loss.

As discussed, this is the starting of analysis, and not the end of it!

And I am sure, the list for the period 2013-2018 would be quite different! Call me now if you know any potential candidates 🙂